For most of the last two decades, the S&P 500 beat value strategies handily. Not in a photo-finish way, either. The index wins, you didn't have to think about it, and year after year the gap made the whole exercise look kind of embarrassing.
The frameworks are intellectually coherent and the logic holds. Greenblatt's earnings yield screen in The Little Blue Book, Pabrai's heads-I-win asymmetry in The Dhando Investor, Buffett's moat hunting in The Warren Buffett Way — all of it makes sense on paper. But once everyone knew the playbook, the edge disappeared. The value screens were also built for factories and physical assets and don't really know what to do with a software company or a brand. And for fifteen years, near-zero rates made growth stocks worth dramatically more while value investors kept waiting for the situation to correct.
Buffett was doing PE before PE was a thing. Everyone studied him, PE firms formalized the playbook, and public markets priced it in. Then PE moved downstream. They're now snapping up plumbing companies, HVAC businesses, dental practices, the whole lower middle market. They play the value game at institutional scale and they play it small. There's no tier left where an individual is competing on price against unsophisticated capital.
So: stop trying to find a deal. The individual hunting for an underpriced or distressed SMB is competing against people with analysts, deal flow, and pattern recognition built over hundreds of acquisitions. You'll lose that game, or you'll win it by buying something broken.
The actual play is to pay well for a solid, established business and use SBA 7(a) Loan leverage to make the math work. Overpaying on a good business is far less risky than hunting for value in a turnaround. You're not trying to beat anyone on price. You're betting on your ability to operate it.
SBA 7(a) Loan is what makes Pabrai's asymmetry framework work in this context. Ten percent down on an established cash-flowing business, government-backed loan, proven operation with real assets and real customers. The catch is the personal guarantee: if things go badly wrong, you're on the hook for the loan, often with your house behind it. The asymmetry is real but it's not free. You're paying for the upside with your signature, not just your down payment.
I find the ideas genuinely interesting. Pabrai's asymmetry framing, the quality-over-price logic from Buffett — these are useful mental models even if you never use them to screen stocks. But I don't think that means you should run your money this way, at least not instead of owning the index.
Sometimes a proven idea stops working not because it was wrong but because the conditions that made it work changed. Value investing required inefficient markets and cheap-to-identify mispricings, and both are harder to find now. That could shift — rates, market structure, something else — and the framework would be right again before most people noticed. But that's a bet on mean reversion, not a reliable edge right now.
The SMB route is the one place the old thesis still has legs. But accessible isn't the same as for everyone. Between the personal guarantee and the fact that you're really signing up to run the thing, it's a job, not a portfolio. For most people that still points back to the index.